One of Bombay's most eagerly awaited events each year is an open public talk by lawyer Nani A. Palkhivala. Witty and incisive, the 60-year-old former Ambassador to Washington and leading Tata executive caustically elates each government budget usually tearing it to shreds, India Today, in an exclusive interview asked the eminent lawyer what he thought of the citizens tax burden.

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January 25, 2014

ISSUE DATE: June 15, 1980

UPDATED: December 1, 2014 13:04 IST

One of Bombay's most eagerly awaited events each year is an open public talk by lawyer Nani A. Palkhivala. Witty and incisive, the 60-year-old former Ambassador to Washington and leading Tata executive caustically elates each government budget usually tearing it to shreds, India Today, in an exclusive interview asked the eminent lawyer what he thought of the citizens tax burden. Excerpts:

Q. Why have taxes become so complex over the years?A. The main causes of the nightmarish complexity are:

Amendments made to counteract some stray act of evasion, despite the knowledge that such amendments would cause harassment to innumerable honest taxpayers.

The ever-growing power of the ever-expanding bureaucracy which is firmly convinced that the citizen exists for the State and not the State for the citizen.

Lack of either adequate knowledge or requisite will and courage at the Cabinet level to do the right thing by the country, instead of devoting the entire ministerial tenure to exercises in populism.

Q. Can something he done to make taxes more effective and less costly, confusing and cumbersome.A. The whole Income Tax Act which is not comprehensible to even one taxpayer out of a thousand, can be reduced to less than a fourth of its present size without any loss of revenue.

Q. Do you think the middle class bears an unfair share of the tax burden?A. The middle class is the most unfairly treated class in our society. They do not burn buses, disfigure buildings or go on a wild rampage; they have no lobby in Parliament and no political godfather in public life. The result is that the legitimate grievances of the middle class, particularly the salaried employees, have never been redressed.

Q. What are the alternative sources of revenue if the tax burden is decreased?A. The incontrovertible fact is that if the tax burdens are decreased, the revenues would actually increase because of increased economic activity, greater honesty on the part of taxpayers, and an enlarged tax base. When personal taxes were reduced in 1974 and 1976, the exchequer actually benefited by garnering larger revenues.

Q. How do you explain that?A. When people feel that they have been fairly treated by the Government, they respond in a manner which it is impossible to expect when they are writhing under a crushing burden of taxation. An honest nation, a buoyant economy, increased productivity and a mood of zest and confidence - these are all the fruits of a moderate level of taxation. What you need in the country today is the attitude of Dr Erhard, who slashed taxes overnight, (to the vast consternation of his bureaucrats) and paved the way for Germany's economic miracle. I have no doubt whatever in my mind that with the right leadership and with the right type of fiscal and other economic policies. India can achieve undreamt-of economic growth. We are inferior to no nation in skills, innate intelligence and the spirit of enterprise.

Q. How far do you think tax rates should he reduced?A. My own view is that personal taxation should in no case exceed 60 per cent of the taxable income. The level of corporate taxes should in no case exceed 50 per cent. Countries with the highest rates of growth have such a tax structure. I am a total believer in the philosophy that we should have not only economic growth but economic growth with social justice. However, in a poor country like India, we can never have social justice without economic growth.

Our tax laws, like our other economic policies, are well designed to depress our economy and hamper economic growth. If the amount of public lime, energy and revenue which are employed in keeping down our economy were to be utilised in developing it we would achieve an economic transformation.

We harness the power in coal and oil, but the immeasurable reservoir of the people's faith and response, energy and endeavour, is left to channel off where it will. This imponderable human force is beyond the vision of our budgets and our politicians.

The remark that tax rates in India cannot be reduced because of widespread evasion, is on a par with the observation that you should not go into the water till you have learnt to swim. This is the right moment in our country's history to have a nutritive budget which would breed lilacs out of the dead land and stir dull roots with spring rain.

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